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Does Banning TN Income Tax Spell Budget Disaster?

April 11, 2011

NASHVILLE, Tenn. - Members of a House Finance subcommittee are researching the legality of amending the state constitution to ban new income taxes. Tennessee does not have a general income tax, but it does levy a tax on income from stocks and bonds, referred to as the "Hall Income Tax."

Supporters say the amendment will keep the state attractive to businesses and create jobs. However, Brian Paddock, a board member of Tennesseans for Fair Taxation, points out that other considerations need to be made, because the state has been facing significant revenue shortfalls year after year, and looming federal funding cuts will aggravate the problem.

"Tennessee is going to have to decide whether it's going to make that up. You're going to need revenue to do that and you're going to need revenue options. The other problem is that you can't ever give most Tennesseans a real tax cut."

Right now, Paddock says, most of the tax burden falls on the people at the bottom of the pay scale - accounting for 11 percent of their income - and those with the most money are levied a rate between one percent and two percent. He says a more progressive tax structure could solve a lot of budgetary issues.

"Having a progressive income tax, which has been recommended by the tax structure study commission and other people, would actually reduce the tax burden for anywhere from 65 percent to 85 percent of Tennesseans."

Paddock adds that banning an income tax means a future legislature could not end the food tax, cut back the retail sales tax or eliminate the Hall Income Tax.

If the House supports the amendment, the proposed ban would need to pass both houses by a two-thirds vote in the next legislative session, and then go on a statewide ballot in 2014. The Senate has already approved the bill.

Laura Thornquist, Public News Service - TN